Condo Directors Must Be Willing to Cooperate And Resolve Opposing Legitimate Interests

"[B]eing stubborn and unwilling to compromise when parties have different, but legitimate, interests and concerns is a costly and unwise endeavour. Looking for common ground, and working hard to find solutions, is always the better way."

It is very difficult for a board of directors to govern when opposing parties each have legitimate and valid interests. Choosing a winner-takes-all mentality can prove costly, however, especially when one of the board of directors could potentially benefit from being on the winning side. A recent Ontario Superior Court decision and its subsequent cost award demonstrates this principle.

The condominium corporation was a 242 unit building located a few blocks from Carleton University which gave it the potential to provide rental income for investors. However, the Declaration required each unit to be used as a single family residence. Additionally, the constituting documents prohibited multiple leases per unit. In other words, an owner could lease to a tenant who could share the rent with others but the owner was prohibited from entering into separate leases based on individual room occupancy.

Historically, the residency rules had not been enforced. At the time of the dispute, 116 of the 242 units were owned by investors with the purpose of producing rental income and 54 of those units were being leased to multiple tenants. A dispute arose between owners who wanted to enforce the single family provision and those who wanted the units for income producing purposes.

One of the board members, the president, took a particular interest in the dispute, influenced in no small way by the fact that he personally owned and rented out 4 units. His solution to the dispute was that the rental to non-single family renters should be grandfathered for a period of 10 years allowing current owners to continue to ignore the Declaration. The opposing side sued to prevent the grandfathering provision.

The court rejected the board's argument that the grandfathering provision was a reasonable solution to the dispute. Rather, the court found that this provision would allow the investor-owners a "back-door" method to do what the Declaration prohibited. The court also found that the president spearheading the campaign for the grandfathering provision was in breach of his fiduciary duties owed to the condo corporation because he had a conflict of interest in the fact that he owned four units that he was renting out.

When determining the issue of costs, the court ruled that the president should personally be responsible for $15,000 or 30% of the costs payable because of his failure to act in good faith.

The Lesson for Directors: Insofar as possible, attempt to cooperate with owners who have legitimate interests and compromise to find reasonable solutions. Any conflicts of interest should be noted in the board minutes and conflicted directors should be recused from voting on the issues relating to their conflicts. Non-conflicted directors should ensure that their objections to the votes of conflicted directors are recorded in the minutes to negate any personal liability.

The Lesson for Owners: Take a active interest in the management of your condo building and in the election of its board of directors. As an owner, if the board makes bad decisions, you will likely be the party that bears the majority of the costs involved so be proactive to prevent problems or problematic personalities at the governance level.

Ballingall v Carleton Condominium Corporation No. 111, 2015 ONSC 2484 http://www.canlii.org/en/on/onsc/doc/2015/2015onsc2484/2015onsc2484.pdf Ballingall Ballingall v Carleton Condominium Corporation No. 111,, 2015 ONSC 4129 (costs decision) http://www.canlii.org/en/on/onsc/doc/2015/2015onsc4129/2015onsc4129.pdf

The content and the opinions expressed here is informational purposes only and does not constitute legal or professional advice. Nor does reading or commenting on it create a lawyer/client relationship with the author. I encourage you to contact me directly at adrianlawoffice@gmail.com if you have specific legal questions or concerns.

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